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GAO-12-823R:
United States Government Accountability Office:
Washington, DC 20548:
September 10, 2012:
Congressional Committees:
Subject: Defense Management: The Department of Defense's Annual
Corrosion Budget Report Does Not Include Some Required Information:
In 2012, the Department of Defense (DOD) estimates that corrosion
costs the Department about $20.9 billion annually. Corrosion can
negatively affect all military assets, including both equipment and
infrastructure, and is defined as the deterioration of a material or
its properties due to a reaction of that material with its
environment.[Footnote 1] Corrosion also affects military readiness by
taking critical systems out of action and creating safety hazards.
Section 2228 of Title 10 of the United States Code requires DOD, as
part of its annual budget submission, to submit a report to Congress
on corrosion funding. In the report, DOD is to include (1) funding
requirements for its long-term corrosion reduction strategy, (2) the
return-on-investment (ROI) that would be achieved by implementing the
strategy, (3) the current and previous fiscal year funds requested in
the budget compared to funding requirements, (4) an explanation if
funding requirements are not fully funded in the budget, (5) the
amount of funds requested for both the current and previous fiscal
years in the budget for each project or activity described in DOD's
long-term strategy compared to the funding requirements for the
project or activity, and (6) a copy of the annual corrosion report
most recently submitted by the corrosion control and prevention
executive of each military department as an annex to its report. The
military departments' reports are to include recommendations
pertaining to the department's corrosion control and prevention
program and related funding levels to carry out all of the duties of
the corrosion control and prevention executive.[Footnote 2]
Section 2228 also requires us to analyze DOD's budget submission and
report and provide an assessment to the congressional defense
committees within 60 days after the submission of the budget for the
fiscal year,[Footnote 3] which this year occurred on February 13,
2012. DOD submitted its annual report to Congress on May 21, 2012, and
we received the report on May 23, 2012. Our objectives were to (1)
determine the extent to which DOD's corrosion report included the
mandated elements, (2) assess the extent to which DOD's Corrosion
Prevention and Control (CPC) funding request met total estimated CPC
funding requirements for activities and preliminary project proposals
as identified in the fiscal year 2013 corrosion report, and (3)
calculate the potential cost avoidance that DOD may achieve by funding
CPC at the level requested in its fiscal year 2013 corrosion budget
materials report and the cost avoidance DOD may miss by not fully
funding its requirements. Enclosure I provides briefing slides for
congressional committees detailing the results of our analysis of
DOD's CPC budget request and the Office of Corrosion Policy and
Oversight's (CPO) accompanying report for fiscal year 2013.
To conduct this work, we analyzed DOD's report to determine if it
included the mandated elements, including the extent to which one of
these elements -the military departments' annual corrosion reports--
contained recommendations pertaining to the military departments' CPC
program and corrosion-related funding levels that are required to
carry out all of the duties of the corrosion control and prevention
executive. Additionally, we analyzed data on DOD's fiscal year 2013
CPC funding request and met with officials from the military
departments and the Corrosion Policy and Oversight office. A more
detailed description of our objectives, scope, and methodology is
provided in enclosure I. We conducted this performance audit from
February 2012 to September 2012 in accordance with generally accepted
government auditing standards. Those standards require that we plan
and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on
our audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
In summary, we found that DOD's fiscal year 2013 corrosion budget
report to Congress (1) included some, but not all of the six mandated
elements; (2) included a funding request that equals DOD's fiscal year
2013 stated requirements for corrosion activities and projects; and
(3) lacked information needed to calculate the potential cost
avoidance. First, DOD included three of the six mandated elements, did
not include two of the elements, and one of the elements was not
applicable this year. For example, DOD included the most recent annual
corrosion reports of the military departments, attached in an annex.
However, it did not include the funds requested in the budget compared
to the funding requirements for the fiscal year covered by the report
or the previous fiscal year. Second, DOD officials stated that the
fiscal year 2013 budget request and the fiscal year 2013 funding
requirements for activities and projects are the same this year--$9.1
million. According to these officials, DOD does not have any fiscal
year 2013 unfunded requirements for corrosion activities and projects.
Third, we did not calculate the cost avoidance DOD could achieve with
its fiscal year 2013 budget request, because the analysis that DOD
provided does not support the 14 to1 average ROI for projects cited in
its report. Further, we did not calculate the cost avoidance that DOD
might be missing by not funding its requirements, because DOD
officials said that they do not have any unfunded requirements this
year. Without all of the required information on DOD's corrosion
prevention and control activities and projects, DOD senior leaders and
Congress may face challenges in assessing the levels of funding needed
to effectively prevent and control corrosion.
For additional information on the results of our work, see enclosure I.
Recommendations for Executive Action:
To ensure that Congress has the accurate and comprehensive information
it needs to exercise its oversight responsibilities, we recommend for
fiscal year 2013 and beyond that the Secretary of Defense direct the
Under Secretary of Defense for Acquisition, Technology and Logistics
to take the following three actions:
* Provide in the annual corrosion budget report to Congress a more
detailed explanation of the development of DOD's funding requirements.
* Include in the annual corrosion budget report to Congress the funds
requested in DOD's budget compared to the funding requirements for the
fiscal year covered by the report and the preceding fiscal year.
* Provide in the annual corrosion budget report to Congress an
explanation of DOD's ROI methodology and analysis, including both
projected and, to the extent available, validated ROIs.
Agency Comments and Our Evaluation:
We provided a copy of a draft of this report to DOD for comment. In
its written comments, which are reprinted in enclosure II, DOD did not
agree with our three recommendations.
DOD did not concur with our recommendation to provide in its annual
corrosion budget report to Congress a more detailed explanation of how
it developed its funding requirements. DOD stated that the report as
submitted provides Congress with all of the information it needs to
exercise its oversight responsibilities. Section 2228 of Title 10 of
the United States Code required us to determine the extent to which
DOD's report to Congress included, among other things, funding
requirements for its long-term corrosion reduction strategy. Our
review found that DOD's report to Congress included $9.1 million as
its fiscal year 2013 funding requirements. However, the supporting
analysis DOD provided us did not support the $9.1 million funding
requirements. In addition, DOD's comments make reference to its
corrosion strategic plan and process for executing projects and
activities. Specifically, DOD cites a 2010 GAO report noting that DOD
had established a rigorous process to select corrosion prevention
projects.[Footnote 4] Our recommendation focused on DOD's explanation
of how it developed its corrosion budget funding requirements and not
DOD's process for the selection or execution of its corrosion projects
and activities. Therefore, we continue to believe that DOD should
provide in its annual corrosion budget report a more detailed
explanation of the development of its funding requirements for fiscal
year 2013 and beyond. Without details on the methodology, Congress
lacks key information about whether DOD's funding of the CPC program
can address the current and future costs of corrosion prevention and
control.
DOD did not concur with our recommendation to provide in its annual
corrosion budget report to Congress the funds requested in the budget
compared to the funding requirements for the fiscal year covered by
the report and the preceding fiscal year. Our recommendation is
consistent with Section 2228(e)(1)(c) of Title 10 U.S.C., which
requires DOD to include in its annual report the funds requested in
the budget compared to the funding requirements for the fiscal year
covered by the report and the preceding fiscal year. In its comments,
DOD stated that the funds requested in the budget are equal to the
funding requirement and that the funds requested in the budget reflect
the required corrosion program funding considering overall DOD needs.
However, we found that DOD's report to Congress did not include the
funding requirements compared to the funding request for either the
fiscal year covered by the report (fiscal year 2013) or the preceding
fiscal year (fiscal year 2012). Instead, DOD reported the actual
funding it received for CPC compared to the funding request, and only
for the preceding fiscal year. During our review, DOD officials stated
that the data for fiscal year 2013 are not included because, in
keeping with the decision to report actual funding, DOD did not know
what its funding for fiscal year 2013 would be at the time it
submitted its report. In the fiscal year 2013 corrosion budget report,
DOD did not provide the funding requirements for fiscal year 2012, but
instead reported its actual funding compared to the funding request.
During our review, DOD officials stated that the decision to report
actual funding as opposed to the funding requirements for fiscal year
2012 was a senior leadership decision. We continue to believe that DOD
should include this mandated information in its future annual
corrosion budget reports. Without all the required information, DOD
senior leaders and Congress may face challenges in assessing the
levels of funding needed to effectively prevent and control corrosion.
DOD did not concur with our recommendation to provide in its annual
corrosion budget report to Congress an explanation of DOD's ROI
methodology and ROI analysis, including both projected and, to the
extent possible, validated ROIs. DOD's comments referenced the
methodology included in the DOD Corrosion Prevention and Mitigation
Strategic Plan, which the military departments use to estimate the
projected ROI of each project. As we acknowledge in this report, this
methodology is clear and meets the guidance established by the Office
of Management and Budget. However, DOD performs an additional analysis
to determine the projected average ROI for projects that it cites in
its corrosion budget report to Congress. Our recommendation is
directed at this additional analysis and the methodology that supports
the calculated ROI figure included in DOD's report to Congress. During
our review, CPO officials stated that the office performed an analysis
and determined that the average ROI for projects was in excess of 14
to 1. Further, they stated that the analysis contained some validated
ROIs. However, the ROI analysis DOD provided only contains the
projected ROIs and does not contain the more up-to-date validated
ROIs. Therefore, we cannot confirm whether this ROI is accurate or
whether validated ROIs were included. In addition, DOD's comments cite
GAO statements from our review of last year's (fiscal year 2012)
corrosion budget report, where we state that we assessed the data to
be sufficiently reliable.[Footnote 5] We performed the same assessment
this year but came to the opposite conclusion because of the findings
above. We continue to believe that more information on the analysis
and methodology that support the ROI for projects cited in DOD's
annual report would help assure Congress that those numbers are based
on the most up-to-date and accurate information.
We are sending copies of this report to the appropriate congressional
committees. We are also sending copies to the Secretary of Defense;
the Deputy Secretary of Defense; the Under Secretary of Defense for
Acquisition, Technology and Logistics; the Secretaries of the Army,
Navy, and Air Force; and the Commandant of the Marine Corps. The
report also is available at no charge on the GAO website at
[hyperlink, http://www.gao.gov].
Should you or your staff have questions concerning this report, please
contact me on (202) 512-5257 or merrittz@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made key contributions
to this report are Carleen Bennett, Assistant Director; Mark Dowling;
Dawn Godfrey; Joanne Landesman; Charles Perdue; Carol Petersen;
Matthew Spiers; Amie Steele; and John Van Schaik.
Signed by:
Zina D. Merritt:
Director:
Defense Capabilities and Management:
Enclosures - 2:
List of Committees:
The Honorable Carl Levin:
Chairman:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Daniel K. Inouye:
Chairman:
The Honorable Thad Cochran:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
United States Senate:
The Honorable Howard P. "Buck" McKeon:
Chairman:
The Honorable Adam Smith:
Ranking Member:
Committee on Armed Services:
House of Representatives:
The Honorable C.W. "Bill" Young:
Chairman:
The Honorable Norman D. Dicks:
Ranking Member:
Subcommittee on Defense:
Committee on Appropriations:
House of Representatives:
[End of section]
Enclosure I: Briefing for Congressional Committees:
Defense Management: The Department of Defense's Annual Corrosion
Budget Report Does Not Include Some Required Information:
Briefing for Congressional Committees:
Table of Contents:
* Background;
* Objectives;
* Scope and Methodology;
* Summary;
* Objective 1: Extent Report Included Mandated Elements;
* Objective 2: Extent Funding Request Meets Requirements;
* Objective 3: Potential Cost Avoidance;
* Conclusions;
* Recommendations for Executive Action;
* Related GAO Products.
Background:
Defense system maintenance involves the sustainment of about 300
ships, 15,000 aircraft, 900 strategic missiles and 350,000 ground
combat and tactical vehicles and costs about $52 billion each year.
[Footnote 1] In 2012, the Department of Defense (DOD) estimates that
corrosion-related maintenance accounts for about $20.9 billion a year.
Corrosion affects all military assets and is defined as the unintended
destruction or deterioration of material due to interaction with the
environment. Corrosion takes such varied forms as rusting; pitting;
galvanic reaction; calcium or other mineral buildup; degradation due
to ultraviolet light exposure; and mold, mildew, or other organic
decay.
In addition, corrosion can have negative effects on military equipment
and infrastructure in terms of readiness and safety. GAO has
previously reported that corrosion negatively affects military
readiness by taking critical systems out of action. It has also
impacted safety, resulting in fatal accidents due to the degradation
of equipment.[Footnote 2]
Congress has enacted several legislative requirements — codified at 10
U.S.C. 2228 — to address the high cost of corrosion and its negative
effects.
* In 2002, Congress passed legislation that led to the creation of the
Office of Corrosion Policy and Oversight (CPO) within the Office of
the Under Secretary of Defense for Acquisition, Technology and
Logistics (AT&L). CPO is responsible for the prevention and mitigation
of corrosion of military equipment and infrastructure.[Footnote 3]
* In 2008, Congress required DOD to submit an annual report on its
Corrosion Policy and Oversight budget materials and required GAO to
review the report.[Footnote 4]
* In 2008, Congress also directed the military departments to
designate a corrosion control and prevention executive to be the
senior official in the department responsible for coordinating
corrosion prevention and control activities with the Office of the
Secretary of Defense (OSD) and within the department.[Footnote 5]
* In 2011, Congress added requirements for DOD to include additional
elements in its annual budget materials report.[Footnote 6]
DOD began targeting funding toward Corrosion Prevention and Control
(CPC) in fiscal year (FY) 2006, when it established a separate program
funding element for Research, Development, Test and Evaluation and a
separate corrosion line item within an existing program element for
Operation and Maintenance. CPO manages this program element and line
item. According to DOD's report to Congress, part of this funding goes
toward DOD-wide CPC activities, while the rest of the funding goes
toward technology demonstration projects proposed by the military
departments.
* DOD's CPC activities include such things as conducting cost of
corrosion studies and operating DOD's corrosion website. CPO
identifies these as "required activities" that are essential to the
success and institutionalization of the corrosion program within DOD.
* The projects are military department technology demonstration
projects for both weapon systems and infrastructure that meet CPO's
criteria for funding. The projects are jointly funded by CPO and the
military departments. CPO typically limits its funding contribution to
a maximum of $500,000 per project.
The military departments submit:
* Preliminary project proposals in the fall and;
* Actual project proposals in the spring for CPO's funding approval.
Projects that meet CPO's criteria for funding are announced at the end
of the fiscal year. Figure 1 describes the process in detail.
Figure 1: Project Timeline:
[Refer to PDF for image: timeline]
Early October: CPO data call to military departments for preliminary
projects and cost estimates to help CPO determine its funding
requirements for its annual budget materials report.
Late October - Late December:
Military departments deliver preliminary project inputs with cost
estimates to CPO.
February: DOD submits its budget; CPO's budget materials report due to
Congress; Beginning of annual GAO review.
Early April: CPO data call to military departments for actual project
proposals.
Early to mid-June: Military departments submit project plans to CPO.
Mid-June to mid-August: Project submissions go through various levels
of review by DOD.
Early September: CPO announces approved projects.
Source: GAO analysis of DOD data.
[End of figure]
As part of the project selection process, CPO requires that an
estimated return-on-investment (ROI) cost-benefit analysis be
submitted for each actual project proposal.
The estimated ROI is the ratio of the present value of benefits to the
present value of the actual project proposal's total cost. The total
cost for each project is based on both the funding requested from CPO
and the funding provided by the military department.
* CPO's guidance uses a 7 percent annual discount rate to estimate the
present value of benefits and costs, which adheres to guidance for
public investments in the Office of Management and Budget's Circular A-
94. According to CPO officials, this is a conservative estimate to
avoid overstating the project's eventual ROI.
* Estimated ROIs and savings vary for each actual project proposal
submitted by the military departments.
CPO officials informed us that a military department point of contact
estimates the ROI that is included in the actual project proposals. A
senior official within each military department reviews the actual
project proposal, including the estimated ROI, before the proposal is
submitted to CPO.
DOD is required to include the expected ROI that would be achieved by
funding its requirements in its annual report to Congress.
The Secretary of Defense is mandated to submit annually, with defense
budget materials, a corrosion funding report with information on the
following six elements:[Footnote 7]
* Funding requirements for the long-term strategy to reduce corrosion
and its effects.
* The return-on-investment that would be achieved by implementing the
strategy.
* The funds requested in the budget compared to the funding
requirements for the fiscal year covered by the report and the
preceding fiscal year.
* An explanation if the funding requirements are not fully funded in
the budget.
* For the fiscal year covered by the report and the preceding fiscal
year, the amount of funds requested in the budget for each project or
activity in the long-term strategy compared to the funding
requirements for the project or activity.
* In an annex, a copy of the most recent annual report submitted by
the corrosion control and prevention executive of each military
department to the Secretary of Defense.[Footnote 8] Each military
department report is mandated to include (1) recommendations
pertaining to the military department's CPC program and (2) corrosion-
related funding levels required to carry out all of the duties of the
corrosion control and prevention executive.
In last year's report reviewing DOD's fiscal year 2012 CPC budget
request and budget report, we recommended that the Secretary of
Defense take the following two actions to ensure that Congress has the
information it needs to exercise its oversight responsibilities:
[Footnote 9]
* Direct the Under Secretary of Defense for Acquisition, Technology
and Logistics to include all required elements in DOD's future
corrosion reports.
* Direct the Secretary of each military department to provide the
required information on funding levels necessary to carry out all
duties of the corrosion control and prevention executive. As the
military departments develop the elements needed to provide the full
funding levels, they should include these elements in their annual
reports.
DOD concurred with the recommendations in that report.
Objectives:
As mandated,[Footnote 10] we analyzed DOD's CPC funding request and
its accompanying corrosion report for FY 2013. We had three reporting
objectives:
1. Determine the extent to which DOD's corrosion report included the
six mandated elements.
2. Assess the extent to which DOD's CPC funding request met total
estimated CPC funding requirements for activities and projects as
identified in the FY 2013 DOD corrosion report.
3. Calculate the potential cost avoidance that DOD may achieve by
funding CPC at the level requested in its FY 2013 corrosion budget
materials report and the cost avoidance DOD may potentially miss by
not fully funding its requirements.
Scope and Methodology:
To determine the extent to which DOD's annual corrosion budget report
included the six mandated elements, as well as the extent to which one
of these elements-—the military departments' annual corrosion reports—-
included recommendations pertaining to the military departments' CPC
program and corrosion-related funding levels required to carry out all
of the duties of the corrosion control and prevention executive, we:
* Independently reviewed the annual report using two analysts,
compared and reconciled their observations, and recorded the analysts'
consensus observations;
* Discussed our preliminary analyses with CPO and military department
officials to seek additional information in those cases where we
determined that a report did not include the mandated elements; and;
* Considered the element to be "included" when the report explicitly
discussed all parts of the mandated element and "not included" when
the report did not explicitly address any part of the element. If the
report included some aspects of an element, but not all, then we
considered the element "partially included."
To determine the extent to which DOD's CPC funding request met DOD's
total estimated CPC funding requirements for activities and projects,
we analyzed DOD's FY 2013 corrosion report and interviewed DOD
officials.
To determine the cost avoidance[Footnote 11] that DOD may achieve by
funding CPC at the level requested in its FY 2013 corrosion budget
materials report and the cost avoidance DOD may potentially miss by
not fully funding its requirements.
* We reviewed DOD's FY 2013 corrosion report, interviewed DOD
officials, and requested further documentation and details about how
DOD determined the ROI cited in its report.
* We did not independently validate DOD's estimated CPC activity ROI
or the assumptions that support the projected or validated ROIs of
individual projects. We did compare projected ROIs to validated ROIs
where available to determine if DOD was using the most up-to-date ROIs.
We conducted this performance audit from February 2012 through
September 2012 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit
objectives.
Summary - Objective 1:
Objective 1 — Determine the extent to which DOD's corrosion report
included the six mandated elements.
Of the six mandated elements, DOD's FY 2013 corrosion report included
three elements, did not include two elements, and one element was not
applicable this year.
Figure 2: GAO Assessment of DOD's Fiscal Year 2013 Corrosion Budget
Report:
[Refer to PDF for image: table]
Six mandated elements:
Funding requirements for the long-term strategy;
GAO assessment: Included.
The return-on-investment (ROI) that would be achieved by implementing
the strategy;
GAO assessment: Included.
For the fiscal year covered by the report and the preceding year, the
funds requested in the budget compared to the funding requirements;
GAO assessment: Not included.
An explanation if the funding requirements are not fully funded in the
budget;
GAO assessment: Not applicable[A].
For the fiscal year covered by the report and the preceding year, the
amount of funds requested in the budget for each project or activity
compared to the funding requirements for the project or activity;
GAO assessment: Not included[B].
A copy of the annual corrosion report most recently submitted by the
corrosion control and prevention executive of each military
department, to include (1) recommendations pertaining to the military
department's CPC program and (2) corrosion-related funding levels
required to carry out all of the duties of the corrosion control and
prevention executive (in an annex to the report);
GAO assessment: Included.
[A] DOD cited various reasons why the funding requirements may not be
fully funded in the budget, but no explanation was needed since the
funding requirements are fully funded in the budget, according to CPO
officials.
[B] For the fiscal year covered by the report, DOD cannot provide this
information, because it does not know what projects it will perform at
the time of its report.
Source: GAO analysis of DOD data.
[End of figure]
DOD's corrosion report included three elements: corrosion funding
requirements for FY 2013, the ROI for projects and activities, and the
annual military departments' reports in an annex. However, the report
would have benefited from additional information in some areas. For
example, while the report included a funding requirement of $9.1
million, the analysis and documentation that DOD provided did not
support how it determined this funding requirement.
DOD's corrosion report did not include two elements: the funds
requested in the budget compared to the funding requirements for the
fiscal year covered by the report and the preceding fiscal year; and
the amount of funds requested in the budget compared to the funding
requirements for each project or activity in the strategy for the
fiscal year covered by the report and the preceding fiscal year.
One element was not applicable this year: an explanation of the
reasons the funding requirements are not fully funded in the budget.
DOD's corrosion report contains such an explanation; however, as
reported by CPO officials, the funding requirements are fully funded
in the budget request for FY 2013. Therefore, no explanation is
necessary.
Without all the required information, DOD senior leaders and Congress
may face challenges in assessing the levels of funding needed to
effectively prevent and control corrosion.
Summary — Objective 2:
Objective 2 — Assess the extent to which DOD's CPC funding request met
total estimated CPC funding requirements for activities and projects
as identified in the FY 2013 DOD corrosion report.
DOD requested $9.1 million for CPC in its FY 2013 budget. According to
DOD officials, the FY 2013 funding requirements are also $9.1 million,
so the funding request meets the funding requirements for FY 2013.
Summary Objective 3:
Objective 3 — Calculate the potential cost avoidance that DOD may
achieve by funding CPC at the level requested in its FY 2013 corrosion
budget materials report and the cost avoidance DOD may potentially
miss by not fully funding its requirements.
* We did not calculate the cost avoidance DOD could achieve with its
FY 2013 budget request, because the analysis DOD provided does not
support the average ROI for projects cited in its report and does not
contain the most up-to-date information, as recommended by GAO
guidance.[Footnote 12]
* According to DOD officials, DOD's funding requirements are the same
as the budget request. Therefore, we also did not calculate a cost
avoidance for what DOD might be missing.
* Without assurance that DOD's average ROI for projects is based on
the most complete and up-to-date data, Congress will not have the
complete information it needs to make well-informed decisions about
CPC's budget.
Objective 1 - Extent report included mandated elements: DOD's
corrosion report included three of six mandated elements:
DOD's corrosion report included corrosion funding requirements for FY
2013, the estimated ROI for projects and activities, and the most
recent annual corrosion reports of the military departments.
1. Funding requirements for the long-term strategy—Included. For FY
2013, DOD reported CPC funding requirements of $9.1 million –
approximately $4.6 million for corrosion activities and approximately
$4.5 million for technology demonstration projects. According to DOD
officials, DOD senior leadership decided to align the funding
requirements to the President's budget request in FY 2013. This
resulted in funding requirements considerably less than in past years.
DOD officials told us that there was supporting analysis for how DOD
calculated its FY 2013 funding requirements, but the analysis DOD
provided us did not support the $9.1 million funding requirements.
The report would have benefited from additional information on how DOD
calculated its funding requirements. Without details on the
methodology, Congress lacks key information about whether DOD's
funding of the CPC program can address the costs of corrosion
prevention and control. GAO guidance states that cost estimating
assumptions should be complete, realistic and backed up by historical
data.[Footnote 13]
2. The return-on-investment that would be achieved by implementing the
strategy—Included. DOD reported an average ROI in excess of 14 to 1
for technology demonstration projects and 2 to 1 for corrosion
activities.
* CPO officials stated that the office performed an analysis and
determined that the average ROI for projects was in excess of 14 to 1.
Further, they stated that the analysis contained some validated ROIs.
However, the ROI analysis DOD provided only contains the projected
ROIs and does not contain the more up-to-date validated ROIs. Also,
documentation does not explain how the department determined its
reported projected ROI in excess of 14 to 1. Therefore, we cannot
confirm whether this ROI is accurate or whether validated ROIs were
included.[Footnote 14]
* DOD officials stated that, due to the nature of the CPC activities,
it is difficult to quantify an ROI for activities. The 2 to 1 ROI for
activities cited in DOD's report is an estimate that officials believe
is conservative.
3. Copies of the most recent annual reports of the military
departments — Included. DOD's report includes the annual corrosion
reports of all three military departments.
* The Army and the Navy reports included recommendations pertaining to
the CPC efforts of their respective departments.
* The Air Force's annual report does not include recommendations
pertaining to the CPC efforts of the department.
* All of the military departments identified some, but not all, of the
funding necessary to perform the duties of the corrosion control and
prevention executive.[Footnote 15]
Army Report:
Recommendations pertaining to the CPC efforts of the Army:
* The Army's report contains recommendations that the Army corrosion
control and prevention executive has made to various Army entities to
address corrosion issues. For example:
- Alternatives to using cancer-causing agents, such as hexavalent
chromium and cadmium coatings, which combat corrosion, need to be
proliferated Army-wide.
- To address a unique corrosion issue on UH-60 Black Hawk helicopter
tail-rotor quadrants, precautionary re-balancing of the tail-rotors
was recommended to an Army Reserve National Guard Aviation unit.
Funding required to perform the duties of the corrosion control and
prevention executive:
* The report identifies some of the funding requirements to perform
some of the corrosion control and prevention executive's duties as the
Army's principle point of contact to DOD's Director, Corrosion Policy
and Oversight, and to develop the Army's annual report on corrosion.
* The Army's report does not include the funding required for all of
the duties of the corrosion control and prevention executive because,
according to Army officials, the legislative language does not clearly
define these duties.
Navy Report:
Recommendations pertaining to the CPC efforts of the Navy:
* The Navy's report contains recommendations in its Executive Summary,
such as:
- Increasing the level of funding for CPC programs and projects, which
could provide an opportunity to realize significant cost avoidance and
potential budgetary savings.
- Advocating for a DOD policy requiring CPC to be addressed in the
early stages of the acquisition process.
Funding required to perform the duties of the corrosion control and
prevention executive:
*According to Navy officials, the Navy's corrosion-related funding
requirements and its report do not include the funding required for
all of the duties of the corrosion control and prevention executive.
However, the Navy's annual report for 2011 reported that the corrosion
control and prevention executive had requested $973,000 to perform his
duties in FY 2012.
* Like the Army officials, the Navy officials believe the legislative
language does not clearly define the duties of the corrosion control
and prevention executive. As a result, the Navy is having difficulty
identifying all of its corrosion control and prevention executive's
duties.
Air Force Report:
Recommendations pertaining to the CPC efforts of the Air Force:
* Although the Air Force included recommendations in its 2010 annual
report, its 2011 report does not include recommendations. This is
because of internal reorganization that resulted in the loss of Air
Force corrosion expertise, according to the Air Force official who
coordinated with CPO at the time of our review.[Footnote 16] Further,
this official said that at the time of the report the Air Force did
not have a good grasp on its overall corrosion issues, and therefore
it was not in a position to make recommendations.
* By not including recommendations in its 2011 annual corrosion
report, the Air Force has not provided Congress the information it
needs to determine if the Air Force is taking steps to effectively
mitigate corrosion.
* Subsequent to issuing its annual report, the Air Force developed a
long-term corrosion strategic plan, in June 2012, that contains
several goals that may aid in addressing some of its corrosion issues.
[Footnote 17]
Funding required to perform the duties of the corrosion control and
prevention executive:
* The report identifies some funding for tactical corrosion
actions/activities by aircraft and weapon system.
* The Air Force official stated that the department cannot identify
all the funding required to perform the duties of the corrosion
control and prevention executive because the position was vacant from
late 2010 until late April 2012. Also, the Air Force shares the
concern of the Army and Navy regarding the lack of clarity in the
legislative language defining the duties of the corrosion control and
prevention executive.
Objective 1 — Extent report included mandated elements: DOD corrosion
report did not include two of six mandated elements:
DOD's corrosion report did not include the funds requested in its
budget compared to the funding requirements, and it did not include
the funding request compared to the funding requirements by project
and activity as mandated by law.[Footnote 18]
4. The funds requested in the budget compared to the funding
requirements for the fiscal year covered by the report (FY 2013) and
the preceding fiscal year (FY 2012) — Not Included.
* In the FY 2013 corrosion budget report, DOD did not include the
funding requirements compared to the funding request for this mandated
element. The officials stated that the data for FY 2013 are not
included because, in keeping with the decision to report actual
funding, DOD did not know what its funding for FY 2013 would be at the
time it submitted its report.
* In the FY 2013 corrosion budget report, DOD did not provide the
funding requirements for FY 2012, but instead reported its actual
funding compared to the funding request. DOD officials stated that the
decision to report actual funding as opposed to the funding
requirements for FY 2012 was a senior leadership decision.
5. The funds requested in the budget compared to the funding
requirements for each project or activity for the fiscal year covered
by the report (FY 2013) and the preceding fiscal year (FY
2012)[Footnote 19] — Not Included.
* CPO officials stated that they will not be able to meet this
requirement for the year covered by the report, because they do not
know what projects will actually be submitted by the military
departments until after they submit their budget report. We
acknowledge that, due to its timeline for accepting projects, DOD
cannot provide these data for the year covered by the report.
* CPO officials could not explain why this information was not
included for the prior year. They stated that the information is
available and could be included. They added that it may have been
omitted either to make the report more concise or because CPO does not
know the final amount of funding provided by the military departments
for each project.
* Without the comparison of funding requirements to the funding
request for the year of the report and the prior fiscal year, as well
as the breakdown by project and activity for the prior fiscal year,
Congress may not have all of the data it needs to exercise oversight
and make well-informed decisions regarding CPC funding.
Objective 1 - Extent report included mandated elements: One of the six
mandated elements was not applicable this year:
6. An explanation if the funding requirements are not fully funded in
the budget — Not Applicable. DOD's corrosion report contains an
explanation for why the requirements are not fully funded in the
budget request.[Footnote 20] However, as reported by CPO officials,
the funding requirements are fully funded in the budget request for FY
2013. Therefore, no explanation is necessary.
Objective 2 - Extent funding request meets requirements: According to
officials, the funding request meets requirements for FY 2013:
CPO officials stated that both the funding requirements and funding
request for CPC in FY 2013 are $9.1 million; therefore, the request
meets the requirements. As previously stated, DOD senior leadership
decided to align the funding requirements with the President's budget
request in FY 2013. This resulted in funding requirements considerably
lower than in past years (see table 1).
For the past four years, DOD has identified a budget shortfall,
because its funding requirements exceeded its funding request.
However, this year DOD did not report a shortfall.
Table 1: DOD's Reported CPC Funding Requirements for Activities and
Preliminary Project Proposals, Budget Requests, and Budget Shortfalls,
Fiscal Years 2009 to 2013:
Fiscal Year: 2009;
Activity Requirements: $3.4 million;
Preliminary project proposal requirements: $28.5 million;
Sum of activities and preliminary project proposals[A]: $32.0 million;
CPC budget request: $14.2 million;
Reported budget shortfall[A]: $17.8 million.
Fiscal Year: 2010;
Activity Requirements: $6.2 million;
Preliminary project proposal requirements: $21.5 million;
Sum of activities and preliminary project proposals[A]: $27.7 million;
CPC budget request: $13.1 million;
Reported budget shortfall[A]: $14.5 million.
Fiscal Year: 2011;
Activity Requirements: $6.2 million;
Preliminary project proposal requirements: $40.6 million;
Sum of activities and preliminary project proposals[A]: $47.0 million;
CPC budget request: $12.0 million;
Reported budget shortfall[A]: $35.1 million.
Fiscal Year: 2012;
Activity Requirements: $8.3 million;
Preliminary project proposal requirements: $34.9 million;
Sum of activities and preliminary project proposals[A]: $43.2 million;
CPC budget request: $11.1 million;
Reported budget shortfall[A]: $32.1 million.
Fiscal Year: 2013;
Activity Requirements: $4.6 million;
Preliminary project proposal requirements: $4.5 million;
Sum of activities and preliminary project proposals[A]: $9.1 million;
CPC budget request: $9.1 million;
Reported budget shortfall[A]: $0.
Source: GAO analysis of DOD data.
[a] Totals for a fiscal year may not add due to rounding. The reported
budget shortfall is the total estimated CPC funding requirements for
activities and preliminary project proposals minus the CPC budget
request.
[End of table]
Objective 3 Potential Cost Avoidance: Cost avoidance not calculated
for fiscal year 2013:
In the past, we calculated the cost avoidance DOD could achieve with
its budget request by taking the requests for both projects and
activities and multiplying those amounts by the respective ROIs
reported by DOD.
* The military departments have made progress in validating ROIs over
the past two years. The DOD Corrosion Prevention and Mitigation
Strategic Plan[Footnote 21] states that a projected ROI must be
included when a project is submitted, and that a follow-on review
including a validated ROI should be submitted about 5-6 years after
the project is funded.
* We reported in 2010 that the military departments had completed the
required ROI validations for 10 of 28 projects funded in FY 2005.
[Footnote 22]
* As of May 2012, the military departments have completed the required
ROI validations for 25 of 28 projects funded in FY 2005, and provided
over 35 validated ROIs in total.[Footnote 23]
DOD reported that its average projected ROI for projects is in excess
of 14 to 1, and its estimated ROI for activities is 2 to 1. However,
this year we did not calculate a cost avoidance based on CPO's funding
request and its average projected ROI as we have done in the past
because the analysis DOD provided did not support the average ROI for
projects in excess of 14 to 1 cited in its report.
The analysis that DOD provided contains only the projected ROIs and
does not contain the more up-to-date validated ROIs.
Without the analysis to support the ROI cited in DOD's report,
Congress cannot be assured that the ROI is accurate.[Footnote 24]
GAO guidance on cost-estimating states that cost estimates should be
updated periodically with actual data as they become available.
[Footnote 25] Cost estimates tend to become more accurate as actual
costs replace earlier estimates. For this reason it is important to
update cost estimates with actual costs, so that management has the
best information available for making informed decisions.
We did not calculate a cost avoidance that DOD may potentially miss by
not fully funding its requirements because the requirements are the
same as the request, according to officials.
Conclusions:
DOD included some, but not all, of the information in its FY 2013
corrosion budget report to Congress that is mandated by Section
2228(e) of Title 10, as amended. For example, DOD's report did include
the annual corrosion reports of the military departments attached in
an annex. However, the report did not include the funds requested in
the budget compared to the funding requirements for the fiscal year
covered by the report and the preceding fiscal year. Additionally, the
analysis and documentation that DOD provided did not support how it
determined its FY 2013 funding requirements.
Unlike in prior years, when DOD only reported on projected ROIs for
corrosion projects, the military departments are now validating ROIs,
which provides DOD with more up-to-date data for its corrosion report.
However, the analysis DOD provided did not support the ROI for
projects in excess of 14 to 1 cited in its report and did not include
the most up-to-date information.
Without complete and detailed information, Congress may be limited in
its efforts to provide oversight and make well-informed decisions
about whether DOD's funding of the CPC program will enable the
Department to effectively address corrosion prevention and mitigation.
Recommendations for Executive Action:
To ensure that Congress has the accurate and comprehensive information
it needs to exercise its oversight responsibilities, we recommend for
FY 2013 and beyond that the Secretary of Defense direct the Under
Secretary of Defense for Acquisition, Technology and Logistics to take
the following three actions:
* Provide in the annual corrosion budget report to Congress a more
detailed explanation of the development of DOD's funding requirements.
* Include in the annual corrosion budget report to Congress the funds
requested in DOD's budget compared to the funding requirements for the
fiscal year covered by the report and the preceding fiscal year.
* Provide in the annual corrosion budget report to Congress an
explanation of DOD's ROI methodology and analysis, including both
projected and, to the extent available, validated ROIs.
Related GAO Products:
Defense Management: The Department of Defense's Fiscal Year 2012
Corrosion Prevention and Control Budget Request. [hyperlink,
http://www.gao.gov/products/GAO-11-490R]. Washington, D.C.: April 13,
2011.
Opportunities to Reduce Potential Duplication in Government Programs,
Save Tax Dollars, and Enhance Revenue. [hyperlink,
http://www.gao.gov/products/GAO-11-318SP]. Washington, D.C.: March 1,
2011.
Defense Management: DOD Needs to Monitor and Assess Corrective Actions
Resulting from Its Corrosion Study of the F-35 Joint Strike Fighter.
[hyperlink, http://www.gao.gov/products/GAO-11-171R]. Washington,
D.C.: December 16, 2010.
Defense Management: DOD Has a Rigorous Process to Select Corrosion
Prevention Projects, but Would Benefit from Clearer Guidance and
Validation of Returns on Investment. [hyperlink,
http://www.gao.gov/products/GAO-11-84]. Washington, D.C.: December 8,
2010.
Defense Management: Observations on the Department of Defense's Fiscal
Year 2011 Budget Request for Corrosion Prevention and Control.
[hyperlink, http://www.gao.gov/products/GAO-10-607R]. Washington,
D.C.: April 15, 2010.
Defense Management: Observations on Department of Defense and Military
Service Fiscal Year 2011 Requirements for Corrosion Prevention and
Control. [hyperlink, http://www.gao.gov/products/GAO-10-608R].
Washington, D.C.: April 15, 2010.
Defense Management: Observations on DOD's Fiscal Year 2010 Budget
Request for Corrosion Prevention and Control. [hyperlink,
http://www.gao.gov/products/GAO-09-732R]. Washington, D.C.: June 1,
2009.
Defense Management: Observations on DOD's Analysis of Options for
Improving Corrosion Prevention and Control through Earlier Planning in
the Requirements and Acquisition Processes. [hyperlink,
http://www.gao.gov/products/GAO-09-694R]. Washington, D.C.: May 29,
2009.
Defense Management: Observations on DOD's FY 2009 Budget Request for
Corrosion Prevention and Control. [hyperlink,
http://www.gao.gov/products/GAO-08-663R]. Washington, D.C.: April 15,
2008.
Defense Management: High-Level Leadership Commitment and Actions Are
Needed to Address Corrosion Issues. [hyperlink,
http://www.gao.gov/products/GA0-07-618]. Washington, D.C.: April 30,
2007.
Defense Management: Additional Measures to Reduce Corrosion of
Prepositioned Military Assets Could Achieve Cost Savings. [hyperlink,
http://www.gao.gov/products/GAO-06-709]. Washington, D.C.: June 14,
2006.
Defense Management: Opportunities Exist to Improve Implementation of
DOD's Long-Term Corrosion Strategy. [hyperlink,
http://www.gao.gov/products/GAO-04-640]. Washington, D.C.: June 23,
2004.
Defense Management: Opportunities to Reduce Corrosion Costs and
Increase Readiness. [hyperlink,
http://www.gao.gov/products/GAO-03-753]. Washington, D.C.: July 7,
2003.
Defense Infrastructure: Changes in Funding Priorities and Strategic
Planning Needed to Improve the Condition of Military Facilities.
[hyperlink, http://www.gao.gov/products/GAO-03-274]. Washington, D.C.:
February 19, 2003.
Briefing slides footnotes:
[1] Department of Defense, Department of Defense Corrosion Prevention
and Control Strategic Plan (Washington, D.C.: 2011).
[2] GAO, Defense Management: High-Level Leadership Commitment and
Actions Are Needed to Address Corrosion Issues, [hyperlink,
http://www.gao.gov/products/GA0-07-618] (Washington, D.C.: Apr. 30,
2007).
[3] See Pub. L. No. 107-314, § 1067 (2002).
[4] See Pub. L. No. 110-181, § 371(d) (2008).
[5] See Pub. L. No. 110-417, § 903 (2008). The Army and Navy have
named corrosion control and prevention executives. The Air Force
corrosion control and prevention executive position had been vacant
since late 2010. The Air Force appointed an executive in April 2012.
[6] See Pub. L. No. 111-383, § 331(1), (3) (2011) (amending Section
2228(e) of Title 10).
[7] 10 U.S.C. § 2228(e).
[8] These annual reports are due not later than December 31 of each
year. See Pub. L. No. 110-417, § 903 (2008).
[9] GAO, Defense Management: The Department of Defense's Fiscal Year
2012 Corrosion Prevention and Control Budget Request, [hyperlink,
http://www.gao.gov/products/GAO-11-490R] (Washington, D.C.: Apr. 13,
2011).
[10] U.S C. § 2228(e)(2).
[11] In the past, we have calculated the cost avoidance DOD could
achieve with its budget request by taking the requests for both
projects and activities and multiplying those amounts by the
respective ROIs reported by DOD. In the past, we have also calculated
the cost avoidance DOD might be missing by not fully funding its
requirements by taking the shortfalls for both projects and activities
and multiplying them by the respective ROIs reported by DOD.
[12] GAO, GAO Cost Estimating and Assessment Guide: Best Practices for
Developing and Managing Capital Program Costs, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 2009).
[13] [hyperlink, http://www.gao.gov/products/GAO-09-3SP].
[14] For more information on the validated ROIs of projects versus the
projected ROIs of projects, see Objective 3.
[15] In our review of DOD's FY 2012 corrosion report, we recommended
that the military departments include in their annual reports the
required information on funding levels necessary to carry out all
duties of the corrosion control and prevention executive. See
[hyperlink, http://www.gao.gov/products/GAO-11-490R].
[16] The Air Force's corrosion control and prevention executive
position was vacant from late 2010 through the time the Air Force
issued its 2011 annual report. The Air Force filled the position in
April 2012.
[17] The Air Force developed this strategic plan as a result of the
direction in House Report 112-78, accompanying H.R. 1540, a bill for
the fiscal year 2012 National Defense Authorization Act.
[18] 10 USC § 2228(e)(1)(C) and 10 USC § 2228(e)(1)(E).
[19] DOD did not include these data in last year's corrosion report
and this was the subject of one of our recommendations. Therefore, we
are not making another recommendation this year. See [hyperlink,
http://www.gao.gov/products/GAO-11-490R].
[20] The explanation that DOD provides is that global commitments,
constrained budgets, and the valid requirements of other programs may
preclude fully funding DOD's CPC requirements.
[21] Department of Defense, Department of Defense Corrosion Prevention
and Control Strategic Plan (Washington, D.C.: 2011).
[22] GAO, Defense Management: DOD Has a Rigorous Process to Select
Corrosion Prevention Projects But Would Benefit from Clearer Guidance
and Validation of Returns on Investments, [hyperlink,
http://www.gao.gov/products/GAO-11-84] (Washington, D.C.: Dec. 8,
2010).
[23] Four of the 25 validations from FY 2005 resulted in an unknown
ROI. The 35 total validated ROIs are for funded projects ranging from
fiscal years 2005-2008.
[24] The Senate Armed Services Committee has reported legislation that
would require DOD to include available data on validated ROIs in
future DOD corrosion reports. S. 3254, § 331.
[25] [hyperlink, http://www.gao.gov/products/GA0-09-3SP].
[End of section]
Enclosure II: Comments from the Department of Defense:
Office of The Under Secretary Of Defense:
Acquisition, Technology and Logistics:
3000 Defense Pentagon:
Washington, DC 20301-3000:
August 27, 2012:
Ms. Zina D. Merritt:
Director, Defense Capabilities and Management:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Ms. Merritt:
This is the Department of Defense (DoD) response to the GAO Draft
Report, GAO-12-823R, "Defense Management: The Department of Defense's
Annual Corrosion Budget Report Does not Include Some Required
Information," dated August 2012 (GAO Code 351704).
Detailed comments on the report recommendations are enclosed.
Sincerely,
Signed by:
[Illegible] for:
Daniel J. Dunmire:
Director:
DoD Corrosion Policy and Oversight:
Enclosure: As stated.
[End of letter]
GAO Draft Report Dated August 2012:
GAO-12-823R (GAO Code 351704):
"Defense Management: The Department Of Defense's Annual Corrosion
Budget Report Does Not Include Some Required Information"
Department Of Defense Comments To The GAO Recommendations:
To ensure that Congress has the accurate and comprehensive information
it needs to exercise its oversight responsibilities, GAO recommends
for FY 2013 and beyond that the Secretary of Defense direct the Under
Secretary of Defense for Acquisition, Technology and Logistics to take
the following three actions:
Recommendation 1: Provide in its annual corrosion budget report to
Congress more detailed explanation regarding the development of its
funding requirements.
DoD Response: Non-concur. DoD believes that the report as submitted
provides the Congress with all of the information it needs to exercise
its oversight responsibilities. Budgets for both activities and
projects were provided. Activities are being executed in accordance
with the DoD Corrosion Prevention and Mitigation Strategic Plan, dated
February 2011. Projects are being executed based on input from the
Military Departments in accordance with an established process that
has been characterized by the GAO as "rigorous" in report GAO-11-84
dated December 2010. Any reduction from previous requests is apparent,
as is the basis for current requests.
Recommendation 2: Include in its annual corrosion budget report to
Congress the funds requested in the budget compared to the funding
requirements for the fiscal year covered by the report and the
preceding fiscal year.
DoD Response: Non-concur. The funds requested in the budget are equal
to the funding requirement. The funds requested in the budget reflect
the required corrosion program funding considering overall DoD needs.
Recommendation 3: Provide in its annual corrosion budget report to
Congress, an explanation of this methodology and the return on
investment (ROI) analysis, including both projected and, to the extent
available, validated ROIs.
DoD Response: Non-concur. The methodology used to calculate ROI's is
documented in OMB Circular A-94 and further detailed in the DoD
Corrosion Prevention and Mitigation Strategic Plan. Page 15 of GAO
report 11-490-R (13 April 2011) states, "As in prior years, we did not
independently validate the Corrosion Office's estimated corrosion
prevention and control (CPC) activity requirements, project proposals,
or estimated ROIs. Instead, we relied on data provided by the
Corrosion Office after assessing the general reliability of the data
by crosschecking with other data sets and interviewing the officials
responsible for the data collection.
We found the data to be sufficiently reliable for the purposes of (1)
presenting budget requirements, funding requested, and shortfall data
as stated in DOD's FY 2012 corrosion report and (2) calculating
potential cost avoidance based on these data and estimated ROI
information provided by Corrosion Office officials" This methodology
has not changed.
[End of section]
Footnotes:
[1] 10 USC § 2228(f)(1). Corrosion includes such varied forms as
rusting; pitting; galvanic reaction; calcium or other mineral buildup;
degradation due to ultraviolet light exposure; and mold, mildew, or
other organic decay.
[2] Pub. L. No. 110-417, § 903 (2008).
[3] Section 2228(e)(2).
[4] GAO, Defense Management: DOD Has a Rigorous Process to Select
Corrosion Prevention Projects But Would Benefit from Clearer Guidance
and Validation of Returns on Investments, [hyperlink,
http://www.gao.gov/products/GAO-11-84] (Washington, D.C.: Dec. 8,
2010).
[5] GAO, Defense Management: The Department of Defense's Fiscal Year
2012 Corrosion Prevention and Control Budget Request, [hyperlink,
http://www.gao.gov/products/GAO-11-490R] (Washington, D.C.: Apr. 13,
2011).
[End of section]
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